How to get out of a commercial lease early

A legal break in the lease

Getting out of a lease is not easy - it all depends on the terms and conditions you have agreed to. Shorter leases are generally easier to exit than long ones. Some leases include a “break clause” which offers both tenant and landlord the opportunity to end a lease after a pre-defined period.

Tip. Check whether your lease includes a break clause. If it does, make sure you follow the terms regarding notifying your landlord. For example, you may be required to provide a few months’ notice in writing or there may be a specific address at which the landlord should be notified. Failing to meet these clause requirements could invalidate your lease exit.

Negotiating a lease exit

If no break clause has been included, your landlord may be open to negotiations for an early exit. This should provide a clean break as far as your liabilities are concerned.

Tip. Seek professional advice to confirm without doubt that you have no further legal obligations to the landlord.

Tip. Surrendering your lease early is likely to mean paying the landlord a lump sum which you need to compare with the financial cost of remaining in the premises. The landlord would expect you to consider the existing market conditions when making a proposal to terminate the lease but would not be obliged to agree to any figure offered.

Tip. Along with the cost of the lease termination, factor in the costs of professional advice, both for you and your landlord.

Tip. If your business is struggling due to the pandemic and you can demonstrate the company’s inability to keep up with rental payments in the long term, your landlord may decide they would be better off accepting your proposal or they may even offer to reduce your rent but they’re under no specific obligation to do so.

Assigning a commercial lease

If there is no break clause, and the landlord is not interested in surrendering the lease, you may be able to assign it to a third party. You would need to find a new tenant yourself - one that meets the requirements of the landlord, whose consent will most likely be needed before the lease assignment can go ahead.

Tip. Expect the landlord to check certain details regarding any new tenant, including their financial status (via their business accounts), references, proposed use of the premises and likelihood of requesting alterations to the building.

Tip. Commercial tenants assigning a lease in this way are often required to provide personal guarantees for future tenants’ payments so this may place your own funds at risk.

Subletting

If there is a clause that allows you to sublet your premises, this can be beneficial in that incoming rental payments from the new tenant will cover your own obligations, although you may not be able to charge more than your own rent.

Tip. You’ll need to factor in the costs for paying for professional advisors for your landlord, yourself, and the new tenant, and the marketing expenses in finding a new tenant.